Half Yearly Report

RNS Number : 6107W

Scottish American Investment Co PLC

31 July 2009

 



                      THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. (SAINTS)

RESULTS FOR THE SIX MONTHS TO 30 JUNE 2009

The Company's net asset value total return was 10.9% and the share price total return was 12.4% whilst the benchmark total return was minus 1.7%. The total dividend for the six month period is up 3.4% on last year.

• A second interim dividend of 2.25p per share (2008 - 2.20p) has been declared, bringing the first half total to 4.50p (2008 - 4.35p).  This represents a rise of 3.4% during a period when the RPI fell 1.6%.

• The majority of investments performed well, notably those in emerging markets and Chinese stocks in particular.  The only negative factor of note was the strength of the pound which eroded the sterling return on overseas equity investments.

  
  
  

SAINTS objective is to increase capital and grow income in order to deliver real dividend growth. Its policy is to invest flexibly and actively across a broad range of assets and markets. Listed equities, both UK and overseas, form the largest part of the portfolio. Investments are also made in bonds, property and other asset classes.  

Baillie Gifford & Co, the Edinburgh based fund management group with over £46 billion under management and advice as at 30 July 2009, is appointed as investment managers and secretaries to SAINTS. 

31 July 2009

- ends -

For further information please contact:

Patrick Edwardson, Manager,    

The Scottish American Investment Company P.L.C.    0131 275 2133

  07812 537316

Robert O'Riordan, 

Baillie Gifford & Co    07730 412007

Roland Cross, Director

Broadgate Marketing                            020 7726 6111

The following is the unaudited Half-Yearly Financial Report for the six months 

to 30 June 2009

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

Half-Yearly Financial Report to 30 June 2009

Responsibility Statement

We confirm that to the best of our knowledge:

• the condensed set of financial statements, which has been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports';

• the Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, and their impact on the financial statements, and a description of principal risks and uncertainties for the remaining six months of the year); and

• the Half-Yearly Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

Sir Brian Ivory, CBE

Chairman

30 July 2009

                     THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

Interim Management Report

The extraordinary measures taken by governments and central banks to stabilise the global financial system have restored a degree of confidence to financial markets. Economic activity fell very sharply in the first quarter but the rate of contraction subsequently slowed. The world economy may now begin to grow again during the second half although the outlook remains highly uncertain. 

Against this backdrop, the Company's net asset value and share price rose.  The net asset value total return, with borrowings measured at fair value, was 10.9%.  This compares to a benchmark total return of minus 1.7%.  The share price total return was 12.4%, reflecting a narrowing of the discount since the year end from 10.2% to 9.5%. The net asset value remains some way below the levels which prevailed at this point last year but the strong recent performance reverses most of the losses relative to benchmark that were incurred during the difficult period in markets last autumn. 

Alongside capital appreciation, SAINTS aims to deliver real growth in its dividend. The proposed dividend for the first half is 4.5p, consisting of 2.25p paid in June and the same amount to be paid in September.  This represents a rise of 3.4% during a period when the retail price index fell 1.6%. 

The first half dividend will be paid out of earnings that are lower than for the corresponding period last year due to dividend cuts, falling short term interest rates and the strength of sterling. Our current expectation is that the full year dividend will be funded in small part by reserves which net of the proposed dividend stand in excess of 10p per share. 

Most elements of the portfolio contributed to the improvement in overall performance.  The only negative factor of note was the strength of the pound which eroded the sterling return on the overseas equity investments.

The largest part of the portfolio remains the equity investments.  Their return during the period was 6.4% and at the end of June they represented 63.5% of total assets, equivalent to 90.1% of shareholders' funds. 

The strong performance reflects several factors. The investments in emerging markets and Chinese stocks in particular performed strongly. Sector positioning was helpful with overweights in areas such as technology which did well and a low weighting in pharmaceutical stocks which tended to underperform. Stock selection within sectors also added to performance.

The various bond investments made a positive contribution once allowance is made for the currency forward contracts which are used to hedge out exchange risk on overseas bond holdings.  The Brazilian index-linked bond holding performed strongly, the insurance-linked notes maintained their value and most of the credit market investments went up.  The main exception was the investment in the Athena Debt Opportunities Fund which fell over the six months although the structured finance markets in which this fund invests were showing signs of improvement towards the end of the period.  

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

Interim Management Report (Ctd)

The commercial property market in the UK experienced another difficult and challenging six months with valuations falling and rental income coming under pressure.  However, SAINTS' direct property holdings have always been somewhat different from the broad property market.  A number of rent reviews were concluded successfully and the resulting higher rental income has led to a 6.4% increase in the value of the properties.  

Finally, the listed forestry and property funds, which were 5.9% of total assets or 8.3% of shareholders' funds at the end of June, delivered a positive return.  The property funds are invested in European, Chinese and Japanese markets where valuations were under varying degrees of pressure during the first half.  However, the share prices had begun the year at such extreme discounts to asset value that gains were still possible despite these underlying developments. 

We begin the second half of the year with guarded optimism about investment prospects.  Global economic activity is still very weak but monetary and fiscal policies in most countries are supportive of a return to growth and business and consumer surveys suggest confidence is picking up. Investor confidence is still fragile so we expect markets to remain volatile, but valuations across many markets are lower than they have been for some considerable time and at levels which we believe are attractive.

Principal Risks and Uncertainties

The principal risks facing the Company relate to the Company's investment activities. These risks are market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 19 of the Company's full Annual Report and Accounts for the year to 31 December 2008. The principal risks and uncertainties have not changed since the publication of the Annual Report, which can be obtained free of charge from Baillie Gifford & Co and is available on the SAINTS page of the Managers' website: www.saints-it.com. Other risks facing the Company include the following: gearing risk (the use of borrowings can magnify the impact of falling markets) and regulatory risk (that the loss of investment trust status or a breach of the UKLA Listing Rules could have adverse financial consequences and cause reputational damage).

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

INCOME STATEMENT

(unaudited)

	For the six months ended 30 June 2009				For the six months ended 30 June 2008			For the year ended 31 December 2008
	Revenue £'000	Capital £'000		Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Losses on sales of investments - securities	-	(54,268)		(54,268)	-	(64,410)	(64,410)	-	(163,242)	(163,242)
Changes in fair value of investments - securities	-	60,391		60,391	-	7,448	7,448	-	2,424	2,424
Currency gains/(losses)	-	3,880		3,880	-	(69)	(69)	-	(5,265)	(5,265)
Income - dividends and interest	6,993	-		6,993	10,633	-	10,633	18,816	-	18,816
Income - rent and other	1,240	-		1,240	1,055	-	1,055	2,085	-	2,085
Management fees (note 1)	(226)	(420)		(646)	(467)	(467)	(934)	(832)	(832)	(1,664)
Recoverable VAT (note 4)	970	9		979	419	388	807	419	388	807
Other administrative expenses	(398)	-		(398)	(425)	-	(425)	(824)	-	(824)
Net return before finance costs and taxation	8,579	9,592		18,171	11,215	(57,110)	(45,895)	19,664	(166,527)	(146,863)
Finance costs of borrowings (note 1)	(1,047)	(1,943)		(2,990)	(1,501)	(1,501)	(3,002)	(3,002)	(3,002)	(6,004)
Net return on ordinary activities before taxation	7,532	7,649		15,181	9,714	(58,611)	(48,897)	16,662	(169,529)	(152,867)
Tax on ordinary activities	(1,507)	1,316		(191)	(1,365)	1,161	(204)	(2,757)	2,414	(343)
Net return on ordinary activities after taxation	6,025	8,965		14,990	8,349	(57,450)	(49,101)	13,905	(167,115)	(153,210)
Net return per ordinary share (note 5)	4.55p		6.76p	11.31p	6.30p	(43.36p)	(37.06p)	10.50p	(126.14p)	(115.64p)

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

(unaudited)

Net return on ordinary activities after taxation	6,025	8,965	14,990	8,349	(57,450)	(49,101)	13,905	(167,115)	(153,210)
Changes in fair value of investments - property	-	1,525	1,525	-	(2,225)	(2,225)	-	(5,875)	(5,875)
Total recognised gains/(losses) for the period	6,025	10,490	16,515	8,349	(59,675)	(51,326)	13,905	(172,990)	(159,085)
Total recognised gains/(losses) per ordinary share (note 5)	4.55p	7.92p	12.47p	6.30p	(45.04p)	(38.74p)	10.50p	(130.58p)	(120.08p)
Note:
Dividends paid and payable per share  (note 6)	4.50p			4.35p			8.80p

All revenue and capital items in the above statements derive from continuing operations.

The total column of this statement is the profit and loss account of the Company.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

BALANCE SHEET

 (unaudited)

	At 30 June  2009	At 30 June  2008	At 31 December 2008
	£'000	£'000	£'000
Fixed assets
Investments - securities	265,705	370,977	263,441
Investments - property	25,475	27,600	23,950
	291,180	398,577	287,391
Current assets
Debtors	17,495	20,217	2,857
Cash and deposits	1,658	2,844	2,928
	19,153	23,061	5,785
Creditors
Amounts falling due within one year	(10,903)	(18,765)	(4,089)
Net current assets	8,250	4,296	1,696
Total assets (less current liabilities)	299,430	402,873	289,087
Debenture stock (note 7)	(88,102)	(88,510)	(88,312)
Net assets	211,328	314,363	200,775
Capital and reserves
Called-up share capital	33,121	33,121	33,121
Capital redemption reserve	22,781	22,781	22,781
Capital reserve	138,261	241,086	127,771
Revenue reserve	17,165	17,375	17,102
Shareholders' funds	211,328	314,363	200,775
Net asset value per ordinary share (Debenture at fair value) (note 7)	156.5p	234.3p	145.3p
Net asset value per ordinary share (Debenture at book value)	159.5p	237.3p	151.5p
Ordinary shares in issue (note 8)	132,485,943	132,485,943	132,485,943

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 

(unaudited)

For the six months ended 30 June 2009

	Share capital £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 January 2009	33,121	22,781	127,771	17,102	200,775
Total recognised gains and losses	-	-	10,490	6,025	16,515
Dividends paid (note 6)	-	-	-	(5,962)	(5,962)
Shareholders' funds at 30 June 2009	33,121	22,781	138,261	17,165	211,328

For the six months ended 30 June 2008

	Share capital £'000	Capital redemption reserve £'000	Capital reserve * £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 January 2008	33,121	22,781	300,761	14,723	371,386
Total recognised gains and losses	-	-	(59,675)	8,349	(51,326)
Dividends paid (note 6)	-	-	-	(5,697)	(5,697)
Shareholders' funds at 30 June 2008	33,121	22,781	241,086	17,375	314,363

For the year ended 31 December 2008

	Share capital £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 January 2008	33,121	22,781	300,761	14,723	371,386
Total recognised gains and losses	-	-	(172,990)	13,905	(159,085)
Dividends paid (note 6)	-	-	-	(11,526)	(11,526)
Shareholders' funds at  31 December 2008	33,121	22,781	127,771	17,102	200,775

• The Capital Reserve balance at 30 June 2009 includes a loss of £37,153,000 relating to the revaluation of investments (30 June 2008 - gain of £3,413,000; 31 December 2008 - loss of £99,070,000).

  THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

CONDENSED CASH FLOW STATEMENT (unaudited)
	Six months to 30 June 2009 £'000	Six months to 30 June 2008 £'000	Year to 31 December 2008 £'000
Net cash inflow from operating activities	8,136	10,698	17,707
Net cash outflow from servicing of finance	(3,200)	(3,200)	(6,400)
Total tax paid	(203)	(197)	(327)
Net cash inflow/(outflow) from financial investment	38	(6,435)	(4,570)
Equity dividends paid	(5,962)	(5,697)	(11,526)
Decrease in cash	(1,191)	(4,831)	(5,116)
Reconciliation of net cash flow to movement in net debt
Decrease in cash in the period	(1,191)	(4,831)	(5,116)
Translation difference	(79)	47	416
Other non-cash changes	210	198	396
Movement in net debt in the period	(1,060)	(4,586)	(4,304)
Net debt at start of the period	(85,384)	(81,080)	(81,080)
Net debt at end of the period	(86,444)	(85,666)	(85,384)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation	18,171	(45,895)	(146,863)
(Gains)/losses on investments - securities	(6,123)	56,962	160,818
Currency (gains)/losses	(3,880)	69	5,265
Changes in debtors and creditors	142	(428)	(751)
Other non-cash changes	(174)	(10)	(762)
Net cash inflow from operating activities	8,136	10,698	17,707

  THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

PERFORMANCE ATTRIBUTION FOR THE SIX MONTHS TO 30 JUNE 2009

(unaudited)

Portfolio Breakdown	Average allocation		Total return		Contribution to relative return %	Stock Selection %	Asset Allocation %
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
Quoted Equities*	90.0	100.0	6.4	(1.7)	7.4	8.0	(0.6)
Direct Property	11.8		10.4		1.3	-	1.3
Quoted Equity Property Investments	3.3		16.4		0.6	-	0.6
Quoted Equity Forestry Investments	5.3		2.2		0.2	-	0.2
Quoted Fixed Interest	29.1		(1.3)		(0.1)	-	(0.1)
Unquoted	1.0		(12.7)		(0.1)	-	(0.1)
Deposits and Other Items	3.0		-		1.7	-	1.7
Debenture at book value	(43.4)		3.4		(2.4)	-	(2.4)
Portfolio Total Return (debenture at book value)			7.2	(1.7)	9.0	8.0	0.5
Adjustment for change in fair value of debenture			2.6
Portfolio Total Return (debenture at fair value)			9.8	(1.7)	11.6

• Excludes quoted equity property and forestry investments.

The above returns are calculated on a total return basis with net income reinvested. Contributions cannot be added together as they are calculated on a geometric basis.

Past performance is not a guide to future performance.

Source: Baillie Gifford & Co.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

TWENTY LARGEST INVESTMENTS At 30 June 2009 (unaudited)
Name	Business	Value £'000	% of total assets
Brazil CPI Linked 15/05/2045	Brazilian government bond	12,246	4.1
Cambium Global Timberland	Forestry investment fund	10,350	3.5
Athena 2007 F/R 31/12/37	Debt opportunities fund	9,407	3.1
Bay Haven FRN's 2009/10	Insurance-linked bonds	8,047	2.7
Baillie Gifford High Yield Bond Fund	High yield bond fund	7,585	2.5
Baillie Gifford Greater China Fund	Investment fund	7,560	2.5
Holiday Village in New Romney	Property	6,150	2.1
HSBC	Banking	6,052	2.0
British American Tobacco	Cigarette manufacturer	5,066	1.7
Quorum Oil and Gas	Oil industry technology fund	4,979	1.7
Man Group 11% Perpetual	Financial bond	4,806	1.6
Nursing Home in Kenilworth	Property	4,700	1.6
China Mobile	Mobile telecommunication services	4,557	1.5
GlaxoSmithKline	Pharmaceuticals	4,541	1.5
Petrobras	Integrated oil	4,473	1.5
Vodafone	Mobile telecommunication services	4,465	1.5
Imperial Tobacco	Tobacco	4,337	1.4
Harbourmaster Senior Loan Fund	Leveraged loan fund	4,308	1.4
DBS	Banking	4,263	1.4
Samsung Electronics	Electrical component manufacturer	4,251	1.4
		122,143	40.7

ASSET ALLOCATION

At 30 June 2009

(unaudited)

	30 June 2009 %	30 June 2008 %	31 December 2008 %
UK Quoted Equities*	24.9	33.7	22.1
Overseas Quoted Equities*	38.6	37.6	41.4
Total Quoted Equities*	63.5	71.3	63.5
Direct Property	8.7	6.6	8.3
Quoted Equity Property Investments	2.4	5.3	2.2
Quoted Equity Forestry Investments	3.5	4.0	3.5
Quoted Fixed Interest	18.5	11.3	21.2
Unquoted	0.6	0.4	0.7
Net Liquid Assets	2.8	1.1	0.6
	100.0	100.0	100.0

• Excludes quoted equity and forestry investments  THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited)

	The condensed financial statements for the six months to 30 June 2009 have been prepared on the basis of the same accounting policies as set out in the Company's Annual Financial Statements at 31 December 2008 and in accordance with the ASB's Statement 'Half-Yearly Financial Reports' and have not been audited or reviewed by the Auditors pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'.  With effect from 1 January 2009 the allocation of management fees and finance costs has been amended to 35% to revenue and 65% to capital (previously 50:50), reflecting the Board's current expected long term split of returns generated by the portfolio. This does not represent a change in accounting policy.
2.	The financial information contained within this Half-Yearly Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 31 December 2008 has been extracted from the statutory accounts which have been filed with the Registrar of Companies and which contain an unqualified Auditor's Report and do not contain a statement under section 237 (2) or (3) of the Companies Act 1985.
3.	Baillie Gifford & Co are employed by the Company as investment managers and secretaries under a management agreement which can be terminated on six months' notice. Baillie Gifford & Co receive an annual fee of 0.45% of total assets less current liabilities, excluding the property portfolio, calculated on a quarterly basis. The property portfolio is managed by OLIM Limited, which receives an annual fee of 0.5% of the value of the property portfolio, subject to a minimum quarterly fee of £6,250. The agreement can be terminated on three months' notice.
4.	Recoverable VAT In 2007 the European Court of Justice ruled that investment trust management fees should be exempt from VAT. In 2008 the Company received a reimbursement of £807,000 of VAT, together with £73,000 of interest thereon in respect of claims made by Baillie Gifford for the period 2004 to 2007. The Board is in discussion with the previous Managers about sums recoverable for previous periods and is satisfied that £979,000 is virtually certain to be recovered in respect of the periods from 1990 to 1996 (£927,000) and 2001 to 2004 (£52,000) and has therefore recognised this amount in the current period. The amount recognised in respect of the period from 2001 to 2004 was received by the Company in July 2009, together with interest thereon of £10,000. In accordance with AIC guidance, recoverable VAT has been allocated between revenue and capital on the same basis as the VAT expense was originally charged.
5.	Returns per ordinary share Net return per ordinary share is based on the return on ordinary activities after taxation figures in the Income Statement and on 132,485,943 ordinary shares of 25p, being the number of ordinary shares in issue during each period. Total recognised gains and losses per ordinary share is based on the total recognised gains for the period in the Statement of Total Recognised Gains and Losses and on 132,485,943 ordinary shares of 25p, being the number of ordinary shares in issue during each period.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (Ctd)

		Six months to 30 June  2009	Six months to 30 June  2008	Year to  31 December 2008
		£'000	£'000	£'000
6.	Dividends
	Amounts recognised as distributions in the period:
	Previous year's final of 2.25p (2008 - 2.15p), paid 15 April 2009	2,981	2,848	2,848
	First Interim of 2.25p (2008 - 2.15p), paid 30 June 2009	2,981	2,849	2,848
	Second Interim (2008 - 2.20p)	-	-	2,915
	Third Interim (2008 - 2.20p)	-	-	2,915
		5,962	5,697	11,526

	Amounts paid and payable in respect of the period:
	First Interim of 2.25p (2008 - 2.15p), paid 30 June 2009	2,981	2,849	2,848
	Second Interim of 2.25p (2008 - 2.20p)	2,981	2,915	2,915
	Third Interim (2008 - 2.20p)	-	-	2,915
	Final dividend (2008- 2.25p)	-	-	2,981
		5,962	5,764	11,659
	The second interim dividend was declared after the period end date and therefore has not been included as a liability in the balance sheet. It is payable on 30 September 2009 to shareholders on the register at the close of business on 28 August 2009. The ex-dividend date is 26 August 2009.
7.	The market value of the 8% Debenture Stock 2022 at 30 June 2009 was £92.1m (30 June 2008 - £92.5m; 31 December 2008 - £96.6m).
8.	At 30 June 2009, the Company had the authority to buy back 19,859,642 of its own shares. No shares were bought back during the period under review.
9.	During the period, transaction costs on purchases amounted to £149,000 (30 June 2008 - £133,000; 31 December 2008 - £327,000) and transaction costs on sales amounted to £37,000 (30 June 2008 - £63,000; 31 December 2008 - £129,000).
10.	The Half-Yearly Financial Report will be available on SAINTS page of the Managers' website www.saints-it.com on or around 14 August 2009. None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

END

 

 

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